monitoring is costly governance is imperfect. If managerial hedging is detected, shareholders can seize the payoffs of the … manager’s trades. We show that at the optimal contract: (i) the manager’s portfolio is monitored only when the firm performs … poorly, (ii) the more costly monitoring is, the more sensitive is the manager’s compensation to firm performance, and (iii …

conventional contract theory. Our three key insights are: First, inequity aversion plays a crucial role in the design of optimal …

This paper analyses bargaining over an incentive compatible contract in a moral hazard framework. We introduce the … bargaining power, the contract in the Kalai-Smorodinsky solution yields a more efficient outcome and induces more effort. The …

A manufacturer’s incentives to undertake non-contractible investments depend on the profit margin on her sales to the … retailer, and slotting allowances can facilitate such incentives by increasing unit wholesale prices. At first glance, it is …

This paper extends the Mirrlees (1971) model of optimal non-linear income taxation with a monitoring technology that … the joint determination of the non-linear monitoring and tax schedules and the conditions under which these can be … implemented. Monitoring of labor effort reduces the distortions created by income taxation and raises optimal marginal tax rates …

When a principal’s monitoring information is private (non-verifiable), the agent should be concerned that the principal …, when rescaling is feasible, private monitoring is more efficient than public monitoring subject to collusion because non …

gather information on investment projects. The initial owner has two tasks: monitoring the manager and supervising project … choice. Optimality would require a large ownership stake for monitoring but a small stake for not interfering with managerial … incentives. Delegating project choice to the manager can alleviate this conflict if managerial private benefits are not too small …

. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in …